Though the war in Iraq is still raging in parts of the country,
the battle among companies to rebuild the shattered nation has
already begun. And while the war riveted the world over a span of
several weeks, the rebuilding will take much longer, and cost much
more, than the conflict itself. At the same time, since the
reconstruction will be an extremely costly and time-consuming
affair, it could prove a boon to American companies that secure
contracts to rebuild Iraq.

Although the United States has contributed in recent years to
the reconstruction of several other shattered
countries--Afghanistan, Cambodia and East Timor, for example--the
Iraq reconstruction probably will dwarf these former efforts. The
Bush administration has announced that rebuilding Afghanistan will
take 10 years and roughly $20 billion. In contrast, a study by the
Council on Foreign Relations, a leading U.S. think tank, estimates
it'll cost nearly $100 billion to rebuild Iraq, while the
Center for Strategic and Budgetary Assessments, a research
organization, has calculated that the nonmilitary rebuilding costs
could near $500 billion. "This is going to be an effort that
doesn't really compare to any recent nation-building,"
says Steve Kosiak, director of budget studies at the Center for Strategic and
Budgetary Assessments in Washington, DC. "You'd have
to go back to the Marshall Plan [the post-WWII reconstruction of
Europe] to find a comparable example. ...The Bush administration
has very ambitious goals for Iraq, which means an expensive
reconstruction."

This rebuilding will result in contracts for companies in a
range of industries. Most likely, the U.S. and a few other nations
will put money into a pool of funds to be used for reconstructing
Iraq. Then, while America sets up an interim administration to run
Iraq, headed by a leading U.S. official, a U.S. government agency
like the Pentagon or the U.S. Agency for International Development
(USAID) probably will launch a bidding process to select companies
that can fulfill specific rebuilding tasks.

What's more, though some foreign nations may complain about
being excluded, the Bush administration seems likely to keep most
rebuilding contracts for U.S. firms, in part to punish other
countries that opposed the war in Iraq. Working with American firms
also is simply easier for an agency like the Pentagon or USAID,
Kosiak says, because it takes less time for U.S. companies to win
security clearances needed to take on federal contracts.

These contracts could be a gold mine. As several newspapers have
reported, in the Iraq rebuilding, contracts will be paid in a
manner known as "cost plus fixed fee." In other words,
the U.S. government will establish how much a project will cost and
promise a contractor that it will pay them this cost plus a fixed
profit--normally 8 to 10 percent. In so doing, the government
basically guarantees contractors make money.

And once American firms win the initial contracts in Iraq, they
would have a leg up on foreign companies in establishing long-term
relationships with the new Iraqi government and with the Iraqi
people, who are richer and better-educated than their counterparts
in Afghanistan or Cambodia. (Iraq has the world's
second-largest proven oil reserves, after Saudi Arabia.)
"Companies that position themselves to win contracts could put
themselves in place to win billions of dollars in more future deals
from a free Iraqi government," says Mark Baxter, director of
the Maguire Energy Institute at Southern Methodist
University in Dallas.

What's the Current Climate?

Despite the war in Iraq and a
faltering economy, business owners remain fairly optimistic about
the hopes for a recovery, according to an Entrepreneur.com survey
conducted the week of April 7. More than half of the 523
respondents indicated that they had no plans to change their
business investment strategy as a result of the war. In addition,
52 percent said their customers had not scaled back on their
purchases since the start of the year, and a full 68 percent said
they think conditions for their businesses will be better 12 months
from now. We may just see a recovery yet. --Karen E.
Spaeder

Subcontracting Is the Key

In some areas, large companies will dominate the bidding for
contracts to rebuild Iraq. "When you're a small company,
it might seem like a daunting risk to handle a large project on
another continent, in a place that's probably not going to be
that secure for a long time," Baxter says.

Indeed, large corporations have already won several big
reconstruction contracts. Seattle-based Stevedoring Services of
America, a shipping and marine cargo company, has landed a $4.8
million deal from the U.S. government to upgrade Iraq's
deep-water port of Umm Qasr, which was damaged by fighting early in
the war and is a vital sea lifeline for Iraq. And USAID has asked
six major construction conglomerates--Bechtel, Fluor, Halliburton,
Louis Berger Group, Parsons Corp and Washington Group--to compete
for the first major infrastructure reconstruction contract.

But small entrepreneurs also can compete for and win some of
these contracts. "Where the opportunity lies for smaller
companies is in the subcontracts of the bigger contracts, where you
only have to handle a small aspect and don't have to take the
huge risks of sending tons of employees to Iraq," says Baxter.
"A big company like a Bechtel or a Halliburton gets a big
infrastructure rebuilding contract and then hires smaller companies
to handles certain aspects of the larger deal." Indeed,
Halliburton last month was given an open-ended contract by the U.S.
government to extinguish oil well fires in southern Iraq and to
rebuild some of southern Iraq's oil infrastructure. After
receiving the contract, Halliburton immediately hired small
Texas-based subcontractors Boots & Coots Well Control Inc. and
Wild Well Control Inc. to take charge of some of the
fire-fighting.

In addition to repairing Iraq's oil infrastructure, some
rebuilding tasks that could involve small companies include fixing
and maintaining the deep-water port of Umm Qasr and rebuilding more
than 2,000 miles of Iraq's highways and secondary roads,
especially in areas south of Baghdad that saw heavy fighting.
Several U.S. officials also have mentioned the need for purifying
water; and one small U.S. company, Moving Water Industries of
Deerfield Beach, Florida, has already begun jockeying to get water
purification subcontracts. Moving Water Industries, a water-pump
manufacturer, hopes to land a contract supplying drinking water to
Iraqis and restoring southern Iraq's badly damaged--but
potentially fertile--marsh wetlands, which were drained by Saddam
during the 1990s in an attempt to punish dissident southerners
after the first Gulf War.

Other American officials have highlighted the need to hand out
contracts to companies that can provide security for other
businesses operating in Iraq. There will be a need for private
military companies (PMCs) to provide security and handle similar
tasks in Iraq, says Peter W. Singer, an expert on PMCs at the
Brookings
Institution in Washington, DC. Most of these PMCs are
relatively small firms.

Small service firms--finance firms, consulting groups and the
like--are also optimistic about their chances for Iraq
subcontracts. Ellerbe Becket, a Minneapolis-based architecture and
design firm, believes it can win subcontracts to build hospitals,
schools and even sports stadiums in Iraq. After all, USAID has
already stated that the U.S. will help rebuild at least 6,000
school buildings in Iraq.

Charlotte, North Carolina-based engineering firm Freeman White,
which has experience working with hospitals and health-care firms,
apparently shares Ellerbe Becket's belief--Freeman White
reportedly is meeting with the Department of Defense to discuss
rebuilding Iraq's medical infrastructure. And many small and
midsized consulting groups in Washington, DC, think they can win
subcontracts to help teach the first free generation of Iraqi
professionals how to utilize the new medical, financial, energy and
educational infrastructure that will be built for them. In fact,
the U.S. has already announced that it will give a contract for
emergency relief and near-term rehabilitation efforts in Iraq to
International Resources Group, a Washington, DC, consulting
firm.

To win these subcontracts, entrepreneurs will need to
demonstrate several skills, Iraq experts say. Having an established
relationship with the Pentagon or USAID, as well as some experience
working in an unstable environment, will be vital, says Baxter.
Experience working in dangerous places will be particularly
important for small companies that plan to compete for oil and gas
subcontracts, since the petroleum industry could be a target of
Iraqi militants.

International Resources Group, for example, has worked in many
other unstable environments, while Boots & Coots and Wild Well
have previous experience putting out oil well fires in dangerous
locales. To lessen the dangers involved in working overseas, in a
potentially unstable environment, small companies in one industry
may want to form a consortium and bid for subcontracts together,
thereby sharing both profits and risks.

Having a regional presence in place can help as well.
"It's important to already have some presence in the
Middle East, so the people handing out the contracts realize that
you understand and can adapt to foreign cultures," says
Ellerbe Becket director of communications Stuart Smith. (The
company's CEO, Rick Lincicome, is in the Middle East presently
and was unavailable for interview.) "We have two small
offices, in Cairo and Dubai, so we can show we comprehend the
region."

Smith also notes that having an established name, even in a
small niche industry, helps in winning international contracts.
"When you compete for an international contract, it helps if
you have some sort of global prestige, even if it's limited to
one field--we're not big, but we're well-known globally for
building health-care facilities," Smith says. "There are
a lot of locally trained professionals you can draw on, and they
prefer to work with a company that has a global
reputation."

Stay Informed

Although the U.S. government
has not yet completely established how it will handle the post-war
reconstruction of Iraq, which agency will take charge of the
reconstruction or how most contracts will be bid upon,
entrepreneurs interested in obtaining more information about the
process should stay informed by repeatedly checking the government
Web site.

And while the plan for reconstruction has not been fully formed,
the U.S. Agency for International Development has issued nine
solicitations to date for reconstruction activities in Iraq.
Information about these solicitations is available at http://www.usaid.gov/iraq/activities.html.

Several of these contracts have already been won, but some are
still open, and entrepreneurs can bid for them. Plus, by constantly
checking on the progress of these contracts, entrepreneurs can find
out if larger companies have won the bids and will then know who to
contact to try to win subcontracts.

Joshua Kurlantzick is a writer in Washington, DC, and a
frequent contributor to Entrepreneur.com.